This is the year you plan to get out of debt, start saving, and finally gain financial freedom. It’s a daunting task. But it doesn’t have to be. We’ve broken the process down into five easy steps and throughout the week we’re going to give you pointers on each.
The 5 steps to financial freedom are:
- create a budget;
- figure out a way to stick to your budget;
- pay off credit card debt;
- plan ahead to increase assets; and
- review your financial plan and adjust as needed.
Sounds obvious, but you could go awry at any step. Here are some of the easiest ways to stay on track. Remember, you climb Mt. Everest one foot at a time. You can gain financial freedom, one step at a time.
Step 1: Budget!
Budgeting is a the most important first step you can take to sort out your finances, but unless you’re an accountant it’s not fun. You might even put it off and think you can start somewhere else, like setting up a savings account. But how do you decide how much to put into it? That all goes into your budget. A budget is a balance between your income and expenses.
- Wellness is holistic, and so is financial wellness. We know that when people think they’re “dieting” they tend to give up--they can’t maintain restrictions. The same is true financially. If you think you’ll just “be good” this month and then you can go back to eating out daily, it’s not going to work. You need to shift your whole mindset to one dedicated to financial freedom.
- Collect everything you need: income statements, credit card and student loan statements, utility bills; anything that gives you a picture of your monthly finances. Don’t guess or estimate.
- Consult the experts. Don’t just open a spreadsheet and start plugging numbers in! There are free online worksheets, but if you can, consult an accounting professional to help create a realistic budget. This is especially important if you’re not someone who likes to plan ahead.
- Automate! Any payments that can be set up to pay online automatically should be. This can include transfers to savings accounts, credit card and student loan payments, even your mortgage. Just make sure to know how much money is already accounted for when you’re determining your other expenses.
- Know yourself. If you’re an impulse shopper who can’t leave the mall without a handful of bags, don’t go to the mall. If you buy every extended family member a birthday present, plan in advance how much you’re spending on each of them.
Step 2: Stick With It!
Create a system you know you can stick with. Even if your budget is realistic, if you don’t like planning ahead or have some surprise expenses, you can be run off the financial rails in no time. The smallest bit of financial planning now can add up to big success later.
- Keep track. If you bullet journal or have a day planner, put your daily budget in it so you can see your financial reality every day.
- Use a reward system. It’s probably best if the reward for sticking to your budget isn’t spending, but can be if you include it in the budget. Think a hot bath with Epsom salts and essential oils or an extra long hike with the dog.
- Check in regularly. Out of sight, out of mind: so keep your household budget somewhere you can see it and refer to it often to see how you’re doing. Another accountability trick is to always ask for a receipt. It makes you more aware of what you’re spending, instead of waiting for that monthly statement. Not only that, it’s easier to correct after one day of overspending than a week without noticing.
- Every day is a new day! If you splurged when you shouldn’t have, don’t fall into the trap of thinking it’s not worth continuing or you’ve already failed. A financially-savvy mindset is for life, not just holiday recovery.
